underpricing

Pricing a securities offering too low; typically applied to initial public offerings (IPOs). When the issue begins trading on the stock exchange, the price shoots up, sometimes rising over 100 percent. The price increase indicates that there is strong demand for shares and that they could have been priced higher. If they had been priced higher, the company would have earned more money. When an issue is underpriced, it is said that the company has “left some money on the table.” However, those who have bought the shares at the original price benefit from the fact that they can now sell the shares in the aftermarket, depending on IPO restrictions, and make a substantial profit.